The Dow has crossed the 10,000 mark again – this time, on the way down. The index has crossed 10,000 27 times (give or take) since it achieved that mark for the first time in March 1999. That statistic alone should suggest that we're in a sustained, multiyear bear market.

Stocks remain overvalued
I've been urging Fools to go underweight in U.S. stocks for months, and my tune hasn't changed today. Even after this month's decline, stocks remain broadly overvalued. At 1,050, the cyclically-adjusted P/E (CAPE) multiple of the S&P 500 is 19.1, against a long-term historical average of 16.4. Devised by Professor Robert Shiller of Yale, the CAPE uses average 10-year inflation-adjusted earnings to smooth out the effects of the business cycle.

The Dow advantage
The Dow differs from the S&P 500 by tilting towards high-quality megacap stocks. It's cheaper, too: Only two stocks in the Dow have a higher cyclically-adjusted P/E multiple than the S&P 500 index (Intel (Nasdaq: INTC) and Alcoa). Respected asset manager GMO expects high-quality stocks to thrash large-cap stocks over the next seven years by a full 5.5% percentage points annually. Here's a highly personal list of the most promising Dow stocks:

Dow Component

Cyclically-Adjusted P/E Multiple

Consensus 5-Year EPS Growth Estimate

Procter & Gamble (NYSE: PG)

13.9

9.0%

Hewlett-Packard (NYSE: HPQ)

13.3

11.8%

Microsoft (Nasdaq: MSFT)

13.3

11.1%

Caterpillar (NYSE: CAT)

12.5

28.0%

Johnson & Johnson (NYSE: JNJ)

12.5

7.2%

Merck (NYSE: MRK)

9.4

7.0%

As of May 24, 2010. Source: Author's calculations and Capital IQ, a division of Standard & Poor's.

The risk of additional losses is high
I expect each of these stocks to soundly beat the S&P 500 index over the next five to seven years, and my conviction is even stronger for the group of six as a whole. Nevertheless, I'm an asset allocation investor, not a stockpicker, so I will continue to suggest that investors underweight the broad U.S. market. As the positive sentiment required to sustain an overvalued market gives way to a harder examination of underlying fundamentals, the risk of further losses is substantial. A one-third decline from today's levels over the next 12-24 months wouldn't surprise me a bit.

Is the bulk of the decline in stocks behind us, or is this the start of something more severe? If you have an opinion, let us know in the Comments section below.

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Fool contributor Alex Dumortier loves macro-themed investing. Alex has no beneficial interest in any of the shares mentioned in this article. Intel and Microsoft are Motley Fool Inside Value picks. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor selections. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended buying calls on J&J and Intel, and a diagonal call position on Microsoft. The Fool owns shares of P&G. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.